Jan. 27, 2011 -- The nation's fourth-largest housing authority spent lavishly on gifts for managers and a party with belly dancers, and its executive secretly spent more than $500,000 in housing authority funds to settle sexual harassment claims, but it allegedly ignored complaints of unsanitary conditions that nearly killed a 12-year-old resident.
The excesses of the Philadelphia Housing Authority, however, are not unique. As Nightline found in a joint investigation with the Center for Public Integrity, the federal government's low-income housing programs, which cost taxpayers $26 billion a year, are plagued by theft, mismanagement and corruption at local levels, including millions spent on housing for sex offenders and dead people, and all too often fail the 3 million families who rely on them for a clean, safe place to live.
In Philadelphia, under the leadership of former executive director Carl Greene, the local housing authority spent $17,000 for a 2006 event, including $1,200 for a troupe of belly dancers. Photos of the event, obtained by ABC News, show Greene dancing with the exotically dressed women. A Philadelphia Housing Authority (PHA) spokeswoman said the event, which also included yodelers and karaoke, was a part of the housing authority's "diversity awareness" training.
The same month, a 12-year-old girl living in the city's federally-subsidized housing suffered a near-fatal asthma attack after, her mother says, poorly trained housing inspectors failed to properly check her home for dangerous black mold.
"I'm telling them over and over again that these problems are going on and nobody's fixing anything. It's like they ignored everything I said," said Angelique McKinney, the girl's mother.
Greene also used housing authority funds to buy gifts, including a $16,000 purchase from Nordstrom for $800 Tumi travel bags for himself and 19 of his top managers in 2009.
"For 12 years, 13 years he's had free reign at the housing authority, and I can't explain it," said Michael Pileggi, a former housing authority attorney who now represents former PHA employees suing Greene and the housing authority. "It appears there was no fiscal oversight."
Greene 'True Serial Sexual Harasser'
Greene was ousted from his $306,000 per year job in September after the housing authority's board of commissioners concluded that he was a "true serial sexual harasser" who had secretly paid more than $500,000 in housing authority funds to settle harassment claims against him.
The housing authority, which receives most of its annual budget of $345 million from the federal government, has attracted the scrutiny of Congressional and federal investigators as a scandal involving waste and misconduct allegations unfolded this fall.
The FBI and the Inspector General of the federal Department of Housing and Urban Development (HUD) are now conducting probes into housing authority activities.
"HUD was not overseeing it the way that they should or this guy would not be in this job," said Sen. Chuck Grassley, R-Iowa. Grassley's interest in Philadelphia is part of a larger inquiry into HUD's oversight of the nation's 3,200 public housing authorities.
"We expect the agency in Washington, D.C., ought to be making sure that every taxpayer dollar is spent in a responsible way," said Grassley. "And it seems to me that we have not had proper oversight."
Sandra Henriquez, assistant secretary at the Department of Housing and Urban Development, told ABC News that HUD officials were unaware of the problems in Philadelphia until local newspapers broke the scandal. She added that Greene's problems should not detract from the accomplishments made during his tenure.
"I would say the Philadelphia Housing Authority did a good job. I want to make that a separate conversation, and not overshadowed by whatever someone's personal problems might be," said Henriquez in a Nightline interview.
HUD announced it would launch a forensic audit of the agency in November.
"If we discover during the audit that PHA has inappropriately used taxpayer dollars to fund other such activities at the expense of those greatly in need of housing, HUD will respond to the full extent permitted by law," said Melanie Roussell, a HUD spokeswoman, in a statement.
Longstanding Problems At PHA
Greene had been widely heralded for his leadership in revitalizing many of the city's crime-ridden public housing projects, but former employees and housing residents say that Greene's highly-publicized success masked longstanding internal problems at the agency.
A 2007 lawsuit brought by McKinney exposed deficiencies within the housing authority's program to help low-income families afford safe and sanitary housing in the private rental market.
Her 12-year-old daughter, Ebony Gage, suffered severe brain damage from an asthma attack while living in a home under the program, commonly known as Section 8.
McKinney says that poorly trained housing authority inspectors failed to detect dangerous mold that had built up from years of unrepaired water leaks throughout the house. She says that the housing authority employees handling her case were unresponsive to her pleas for help.
"Nobody cared. The representatives down there, they look at you like, 'Oh well, it's not our problem,'" said McKinney.
Deposition testimony in the case revealed that several housing inspectors and other Section 8 program employees were largely unaware of the harmful effects of mold.
"They weren't trained on how to identify mold. They didn't know what mold looks like. Many of the inspectors actually say that they didn't know there was testing available to test a home for mold," said Mike Trunk, an attorney for the family.
Philadelphia Housing Authority Paid $9.6 Million
The housing authority settled the case for $9.6 million last May, but did not admit any wrongdoing.
"There were no judicial findings or admissions supporting the allegations," said PHA spokeswoman Nichole Tillman. "PHA continues to be concerned about the health of its residents and goes above and beyond what is legally required. PHA has long had mold inspection and remediation procedures in place."
In another pair of lawsuits filed this fall, former employees and Section 8 landlords claimed that they were coerced into making payments to non-profit "slush funds" set up by Greene and top aides to fund parties and lobbying.
"He had a lot of power. He was able to spend a lot of money in the right places and maintain that power base," said Pileggi, who is among a group of ten former and current employees who say they were demoted or fired after going up against Greene.
The housing authority's interim executive director, Michael Kelly, told ABC News that he believes the agency to be in good shape, but said that he is working to build a "culture of respect" among employees.
"There are opportunities to build up the culture of the organization and to build up the public confidence by making sure what we do here is done in a very transparent and accountable manner," said Kelly. "This is not an agency that will tolerate this kind of management by coercion."
Greene's attorney, Clifford Haines, said in a letter to ABC News that Greene's decision to give "briefcases" to "the people who performed exceptionally well" "makes PHA no different from hundreds of other agencies, business and corporations throughout the Commonwealth of Pennsylvania and the country that occasionally reward their employees."
Haines also said that allegations alluded to in ABC News reporting "are now the subject of litigation either by Mr. Greene or others." Said Haines, "The formal discovery process will reveal facts that strongly contradict what has been said and published by members of the press."
John Solomon is executive editor of the Center for Public Integrity, a nonprofit, investigative reporting outlet in Washington, D.C.